Category Archives: PV

How to Calculate Payback Period | Capital Budgeting Techniques

How to Calculate Payback Period-Capital Budgeting Techniques Payback period is calculated by capital invested in the project by the net annual cash flow. Average of net annual cash flows may be used if net annual cash flows are not expected to be the same. Payback Period= Initial Investment/Average Annual Cash Flows

Internal Rate of Return

Internal Rate of Return Internal Rate of Return is another important technique used in Capital Budgeting Analysis to access the viability of an investment proposal. This is considered to be the most important alternative to Net Present Value (NPV). IRR is “The Discount rate at which the costs of investment equal to the benefits of… Read More »

Payback Period

Payback Period Payback period is the first formal and basic capital budgeting technique used to assess the viability of the project. It is defined as the time period required for the investment’s returns to cover its cost. Payback period is easy to apply and easy to understand technique; therefore, widely used by investors. For example, an investment… Read More »

Net Present Value (NPV) Formula and Example

How to Calculate Net Present Value using Excel? The calculation of net present value is used when a business has to identify a viable investment opportunity. There are many ways to calculate the NPV. The simplest way is:                  By Use of NPV function in Excel: The NPV function consists of the following arguments: =NPV (Rate, FCF… Read More »